In today's episode we are joined by two WealthBuilders members, Michelle Bryant, and Mike Hedgecox. Make sure to tune in if you want to learn about risk mitigation and how alternative investing strategies might work out for you.
The principle of due diligence is risk mitigation. Wealth is about managing returns and managing risk. In today’s episode Kevin Whelan shares 5 areas which may be useful for you to check off when approaching your own research into investment opportunities. You’ll also hear some alternative investing strategies from two more WealthBuilder clients including crowdfunding and investing in businesses.
Show contributors - Michelle Bryant, Mike Hedgecox.
Resources Mentioned In This Episode:
Listen to Episode 06 - Using Wealth Dynamics to Find Your Personal Flow
Listen to Episode 09 - The Wheel of Wealth
5 STEPS OF DUE DILIGENCE:
Personal
Product
People
Property
Process
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Chris rodwell: Okay, so really interesting to hear both from Michelle and Mike there, and I've seen Michelle talking about diversification again, how she typically was investing in property. And now obviously crowdfunding allows her to to really spread high risk. And the opportunity of crowd funding is so low to get started as well. So she's now sharing that message with other people, and certainly around how people can also use Pillar 2, their pension, to invest in crowd funding.
kevin Whelan: Well the whole thing with wealth is the reason why we teach it this way, Chris, is we don't want people to be myopic and see that investing in the crowd, investing in peer to peer, is somehow the domain of Pillar 3. It is not. Because you can move any money from there. You could move money from, not that I'd ever recommended it, but you could technically move money from home equity. You could move money from your pension, you could move money from cash, you could move money from your business. You can just mix and match the way that you choose your balance of investments to suit who you are as a person, and what your unique set of circumstances are.
kevin Whelan: Which is the reason why, Chris, I almost never, and I say almost never because I did give an opinion about [Peter Person 00:00:01:23], but I generally wouldn't give an opinion about what I'd do personally unless I'm asked very specifically. Because my situation is unique to me. My preferences are unique to me. So what I do is not right for everybody, and what Michelle and Mike do is not right for every listener. But it's always good to hear the perspectives of different people, don't you think?
Chris rodwell: Yeah, most definitely is. And Mike had a slightly different approach there. And he talked about his model with never investing more than 10% into any one project. So that's his way of spreading risk and managing his risk, I should say.
kevin Whelan: Well, Mike's a very smart man and has done lots of good things. He's investing in many, many things, which you wouldn't have talked about today because clearly we asked him to be very specific. But expert in property, expert in business, in commercial property. He's just done so many things. I've enjoyed my relationship with Mike, and I would say probably in the wealth building community, he's possibly my longest relationship with a client, 20 years plus. I can't believe it. It's incredible.
kevin Whelan: And we just pick up where we left off every time, and he's always looking to do something interesting and different and challenges himself. He doesn't need to do it, but it's really important for him to feel like he's participating. And not just him, but him and his wife Claire. And increasingly now he's bringing his own daughters into the equation again, as part of that growth of building your wealth. And that's important. But also the reason why we try and do it in a systematic way is to help teaching that to the next generation. And Mike's very passionate about making sure his daughters get all the lessons too. So, thanks to both Michelle and to Mike for giving their time, and sharing with us their views.
Chris rodwell: Now Kevin, I really want to pick up on just this point of due diligence. It comes up with every member, every client we speak to. It's so critical. Of course it's the fourth step in the will of wealth. Can we talk about due diligence? And for someone listening now, Kevin, who maybe just doesn't know where to start, like how do they do due diligence? What is due diligence?
kevin Whelan: Well, due diligence is, it's a complicated sounding thing, isn't it? When is a it due? Whose diligence is it? In a sense, the principle of due diligence is risk mitigation. We know that the whole lessons of managing wealth is about managing returns, managing risk, and you need to do that in a certain way. And I tend to approach due diligence with... I hinted earlier on Chris in my alliteration. And as a teacher of wealth, I love finding ways to make something really, really easy.
kevin Whelan: And I'm going to suggest that there are five levels. Not really five levels, but five touchpoints, I guess. Where it would be important just to maybe tick a box and see that you've made an assessment of the risk. And I'll come on to what if you don't know how to assess the risk of a certain thing.
kevin Whelan: Some things are really very easy to do, aren't they? Like you can assess whether you, I don't know, you want to invest in a low cost fund for example. That would be relatively easy to do. You do a simple questionnaire, and that will help you, that will bring out your attitude to risk. And then you can choose a selection of funds or investments in the stock market that reflect that. Which is really where it all comes down to. The starting point is you as a person. So you have to assess yourself.
kevin Whelan: The reason we do wealth dynamics at the very start of our relationship with our wealth builders, Chris, is because the important thing is to know yourself. And in the course of my life with talking with investors and wealth builders, increasingly, they often will tell you, Chris, and you might reflect on little conversation we had with someone we know who was kind of slightly embarrassed as they were telling us a little about their background. And that they'd made some investments, didn't really spend any time assessing the risk, but just kind of fell frustrated or a little bit anxious to get something done. And in the speed of getting something done, made errors of judgment which cost them money.
kevin Whelan: And this happens all the time. And the more your wealth dynamic is skewed towards the creative end, the higher your dynamo energy is, the lower your tempo energy is, the more likely it is that that's going to happen. So once you know that about yourself, then you might say, well, okay, I'm prone to be a bit keen to get things started. But spending time to slow it down to work out the risk is not me. Then just acknowledging that in yourself can be a starting point to say, well who else do I know? How can I slow that process down a little bit? Because the wheel takes time to turn.
kevin Whelan: And where people make mistakes is they go from a little bit of education, often tiny amounts of education, straight to action without completing, finishing the education, really understanding the risk, making good connections, having somebody to support them. And then doing the final piece, which is the due diligence. So I'd say start with yourself, know yourself. Know if you're likely to make those sorts of mistakes. And then if you are, slow yourself down. [crosstalk 00:07:11]-
Chris rodwell: Would that be-
kevin Whelan: Yeah?
Chris rodwell: Would that be the first piece?
kevin Whelan: Yeah, Chris. That'd be the first piece. So know yourself as a person. And of course if look at Mike and Michelle, very different people, right? So they could have chosen the same things, but they've chosen different things.
kevin Whelan: The next thing to do is if you're looking at, let's say it's a product, something that is already packaged. Could have made another P there Chris, but let's leave it at that. If there's a product like a, I don't know, like an ICER, or a peer to peer, there's a product there, isn't there? So you have to look in and try and understand, well how does this product actually work? How does the money flow? What's the process that's happening there, and how does the investment work?
kevin Whelan: So in peer to peer, in property, you need to look at, well, the money's going in. It's going to be invested by someone. They got a property project, and then that project's going to deliver some outcome. What are the things that could go wrong in that product, and who's done the work to try and help you understand what that risk is likely to be, and spell out those risks?
kevin Whelan: So we've heard a few weeks ago from [Maneesh 00:08:22]. And Maneesh is brilliant at that. Maneesh will work, and he often works with me, and list, this is a risk, this is a risk, this is a risk. Because we know that no investment is risk free. So by understanding the risk and slowing it down, particularly in a product where you don't have the luxury of actually seeing anybody face to face, then it's important to do that. And people like Maneesh can do those sorts of product due diligence. But normally that's not done in somebody who's packaged a product. He's therefore trying to sell that product. And salesmanship is not the same as education, is not the same as due diligence. And the quality of the brochure is not the same as the quality of the outcome.
kevin Whelan: So I'm going to urge a bit of caution on products, Chris. I think over the years I've been working with people on wealth, where mistakes have been made more often than not is a product that they just didn't really understand. So watch out for something that's pre-packaged. Because sometimes it's difficult to see through the layers of that. But we can help you with those products if that's what you're interested in.
kevin Whelan: The next one, Chris, would be people. So one of the things we do, for example, if we're working with somebody in property is, let's call them a property expert. We want to know who they are. We want to know their wealth dynamic. We want to know their financial background. We want to know their credit score. We want to know what properties they have. We want to know if they've got relationships with investors in the past, and what that experience has been. We want to know what their attitude to risk mitigation for themselves is.
kevin Whelan: And often that will help us. The wealth dynamic of the property expert will tell us a little bit more about what things they are most likely to miss. Because joking apart, Chris, I've met many property developers in my, let's say the last 10 years since the credit crunch, and more often than not, if they went to Specsavers, they'd be in the rose tinted spectacle aisle. They're very optimistic people by nature. And often will not be thinking through some of the risks for investors, which are very different to the risks for a developer.
kevin Whelan: So it's important to know the people. So one of the things we do certainly for our wealth builder clients who engage with us to do that is spend a lot of time very rigorously checking out individuals. And we can teach you how to do that. So we'll say these are the things we do. You want to go do that, go do that. And that's part of the relationship with us. So that's... where have we got too, Chris? So, we got personal-
Chris rodwell: That was people. People.
kevin Whelan: Oh, that was people.
Chris rodwell: Number three there. Yeah.
kevin Whelan: The other one I would say, certainly for property, talk about property there, is to understand, well, what are the risks specifically in the project. What is the outcome? So if you look at one stage, we'll talk about the person, let's say the developer, we then now need to look at the development. And how do you assess that? Well, I'm not an expert in that for sure. So why we you use third parties that I know who would be able to look at the numbers that underpin... maybe my son in the future, Chris. He's very accurate in what he does.
kevin Whelan: But right now, I'll use third parties, and they will look at the project, and tell me exactly the risks are in terms of the quantity surveyor report on do the numbers look right? Does the exit strategy look right? Do the valuations look right? Does the project have too much weighted towards the ultimate selling of the property? And what happens if Brexit comes in? Does that affect that kind of property or not? Is the property benefited from Help to Buy?
kevin Whelan: There's a whole series of things way beyond the scope of this podcast, Chris. But I'm not the expert. So the key thing for me is always, if I don't know quite how to do something, I just find somebody who does. And I think that's part of the beauty of the wealth builder community. We've got all of that.
kevin Whelan: And then finally, it's knowing that you have a process for yourself that you like to work through in the same way as you want to know what... like Mike. You heard from Mike, no more than 10%. So what's your process for your own wealth? What percentage of your money do you want spread between the different ways you can invest in Pillar 1, Pillar 2, Pillar 3, and all the subsets that go on in there from stock market investments, to alternative investments, to property investments, to crowd investments, and so on.
kevin Whelan: But you have to always start with the wheel, and you have to spend some time in education. And this is the problem, Chris. This takes time. And people get frustrated because what's the biggest thing that people tell us is the barrier to their wealth, is a lack of time. So if you can't spend the time, then you need to engage in a community where the leverage of other people's time is already made available to you.
kevin Whelan: And I hope that helps. It's not making it easy. But then we're talking about being wealthy for the rest of our lives. It isn't easy, but it's absolutely 100% doable. And we're committed to helping people understand how they can do that due diligence, and wherever possible help them with that for those who choose that, or just show them what due diligence to do. Hopefully, that was helpful with the personal, the product, the people, the process, and property in the case of many. Because property's a very easy asset to actually do due diligence on in fact. More so than business is. Many more moving parts in a business. And I don't think we can help too much there because business is much more of a complex piece than property where you've got a simple exit strategy. No business has a simple exit strategy. It's much more complex.
Chris rodwell: It just reemphasizes points that we've covered on previous episodes and that's good, and hopefully for our listeners as well, these lessons are starting to sink in. That wealth building is a team game. It's not something that that you can do on your own. And I think with those processes there, shows that really need to engage with other people. You need to build your network. But first and foremost, you really need to understand yourself, and that will help you then to connect with the right people that can help you accelerate your journey.
kevin Whelan: Well, nicely said Chris. And I think you've summarized many of the lessons that have come out from podcast one through podcast 24 in a good sentence there. So fantastic way to end the podcast, I think, Chris.
Chris rodwell: Well that wraps up the investment pillar for the time being anyway.
kevin Whelan: Yeah [crosstalk 00:15:23] we're not saying, now you've got investments. I think we've covered enough to be able to move on to property, which is probably one of the biggest pillars isn't it, and the most interesting one for reasons I touched on a moment ago. So why don't we focus on that. Now actually, Chris, we usually get, something happens between us timing our podcast that something just will pop up, wouldn't it, like we did with... well, anything can happen. Somebody will send us a question, we think, wow, well let's get onto that straight away and let's see what happens. But property will be very, very soon, if not the very next podcast.
Chris rodwell: Okay. Well, as always, looking forward to that, Kevin. So thanks again for today's episode. Learned a lot. And we'll catch up on the next episode of Wealth Talk.
kevin Whelan: I look forward to it too, Chris. See you.